Putting A Price On Eternal IT and MSP Happiness

By Jim Hamilton 2

The evil-hearted Mr. Burns of Simpson’s fame once quipped “One dollar for eternal happiness? I’d be happier with the dollar.”

As funny as this line is, it underscores an important business reality — at the end of the day, it doesn’t matter how good your offering is, what matters is how much people are willing to pay for it.  The same is true for Managed Services. So how do MSPs optimally price their offering?  Below are a few simple guidelines to help you coax that dollar out of Mr. Burns’ stingy pocket.

1. Managed Services is still a green field opportunity; there is no need to discount your offering in today’s market. In a recent Institute for Partner Education and Development (IPED) study, it was found that the market for Managed Services in 2008 is $43B, growing to $57B in the next two years.  Furthermore, it is estimated that less than 5% of SMBs have purchased a Managed Services offering. What is the conclusion?

There is no need to discount your prices. Why? Because the market is still full of opportunity in the form of unfulfilled demand.

2. Managed Services should be priced based on value not on cost. Through a conversation with your customer, develop an understanding of their business needs. This will help you establish the value of your offering to your customer.  Then, based on this understanding, price and sell your offering.

Do not lead with price in your discussions as this undermines a discussion around value. Also, avoid the temptation to price on a “cost plus” basis. Yes, Managed Services allows you to deliver your IT services at a lower cost, but this is unrelated to the value delivered to your customer. Pricing on value rather than costs offers you the best of both worlds, higher prices based on value received and lower internal costs to deliver that service.  Net result – nice healthy margins!

3. Not every SMB’s IT needs are the same. The e-commerce company down the street needs 24×7 monitoring for their web server and the library on the corner needs 9-5 support for their cataloging systems. As a result, you must provide a variety of pricing options that cover most SMB’s needs. Typically, SMBs are looking for pricing based upon service coverage and response level. Using this as a guideline, you can quickly build three offerings for different business needs: premium, mid-level and entry-level.

4.  Once value is established and it is time to talk price, always lead with your premium offering. Human beings are hard wired to assess a purchase price relative to something else.  Technology vendors have long known this – consider flat screen technology on the market.  The prices have come down significantly in the last few years and now the market is conditioned to think that they are reasonably priced.  Similarly, your mid-level offering will always seem reasonable in comparison to your premium offering.  If you lead with an entry-level price, every other option will seem expensive.

These four guidelines should get you started in pricing your “Eternal IT Happiness” offering for which even the miserly Mr. Burns would be willing to part with more than a dollar.  You can learn much more on this topic by visiting the MSP Partners website (www.msppartners.com) and watching our “Pricing Strategies for Managed Services Business” webinar by Ryan Morris of IPED.

Jim Hamilton is executive director of MSP Partners. MSPmentor is updated multiple times daily. Don’t miss a single post. Subscribe to our Enewsletter, RSS and Twitter feeds.